Comment by wtmt | Hacker News Reader

Comment by wtmt | Hacker News Reader

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A few comments and advice on investing in India.

The target audience for this would know this, but it's useful to be reminded. INR (Indian Rupee) depreciates on average about 4% each year against USD (US Dollar). When you look at the gains from investments in India in USD terms, it would be lower due to the continuously weakening currency. As an emerging market and one with a still-developing stock market, the returns could be comparatively a lot higher along with volatility.

People in India who "invest" ("gamble" may be a better term) in the stock market are used to larger double digit returns and chase "multi baggers" (check some financial publications in India and you'll find many headlines about multi baggers). This makes the same bunch beat a retreat at the first sign of a downturn.

Tax laws in India are getting more complex and onerous (because the government believes everyone to be a tax evader unless proven otherwise), and it seems like the government wants to slow down the outflow of money from the country while getting a larger slice in advance. Though the government wants to attract non-resident Indians to invest (they've historically sent a lot of money into the country), it's also reluctant to provide an attractive taxation and tax compliance experience. If you choose to invest through this or any other platform, keep an eye on the changing tax laws so that you can exit before things suddenly become painful with very little notice. As an example, though the union budget with tax changes was presented in the beginning of February in the parliament, the government made a slew of changes that impact whole classes of mutual funds just a few days ago with no discussion in parliament and passed all of those (because the ruling party has a majority).

1. INR Depreciation: A seasoned investor (assuming US investor) must cover this risk by shorting his INR position. This way, he only collects the alpha of the Indian stock market while remaining neutral to the fluctuations of the INR.

2. Indian Taxation: This has been the trend in almost every country. The taxes do not matter if the yield is still higher than your Western yield. It'll pay for itself.

3. Money Outflow: In my humble opinion, this is the real concern. You can pay high taxes, and still come out ahead. But if you can't get your money out, that's a real problem. And companies will leave because of that. I think the uncertainty of one's money is what's preventing a foreign investment boom in India.

Agreed with points on tax and repatriation, that is a core part of the service. On the depreciation, most of the depreciation has happened in the zero interest rate environment, which is unlikely to hold true in the medium term. But yes, agreed with the solve there of hedging the currency risk independently, cost of hedging has to be baked in though.

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Wouldn’t the depreciation be higher in a higher (US) interest environment? The gap between US interest rates and Indian interest rates is what determines depreciation and the RBI (effectively, the Indian Govt as the RBI has no real independence) has not been as aggressive in increasing rates. So, I see faster INR depreciation for the near future.

To add, insider trading and financial misreporting is rampant in Indian stocks. Just look at the recent Hindernberg report on Adani as a starting point. The shocking aspect is that this is accepted as the norm.

US stock markets and regulations are not without fault but they are leagues better than stocks in countries like India and China.

Oh and to add on to another excellent point you brought up - Indian regulations are unstable and change on a whim. India’s government recently proposed subjecting long term debt holdings to tax, a move that is widely criticized.

The same Hindernberg, that is banned from doing reports in the US? this seems more like a case of the pot calling the kettle ...

Lol Hindenburg dropped a report on Jack Dorsey's Block, which is a US company just a week ago.

When was Hindenburg "banned" from doing reports in the US? And which agency in the US "blocks" companies from reporting fraud?

Bhai mere. stop following whatsapp propaganda. Hindernberg or no one else is banned from doing any reports in the USA.

Found the BJP IT cell target audience.

A few comments on this

1. Yes it's true that INR has depreciated vs $. But all of that depreciation has been coming in the zero interest regime we have been in the last decade. If you see the previous decade, INR was flat vs $ and NIFTY also grew more than S&P500. Point here is to say that there are financial cycles and the next cycle is likely going to be different (because of higher interest rates at least in the medium term) than the last one. Additionally, higher interest rates also makes US equities less attractive than what they were in the last decade, and India is likely to be among the fastest growing economies in the next decade so a good bet for diversification for 5-10% of your wealth.

2. Can you elaborate on tax laws becoming more onerous for NRIs? The Feb law change doesnt affect NRIs remitting money outside, so dont think is relevant in this case.

> INR was flat vs $ and NIFTY also grew more than S&P500

> India is likely to be among the fastest growing economies in the next decade so a good bet for diversification for 5-10% of your wealth.

I'm going to ask this in the most laymen way possible...how is it possible that a country that is growing faster than the US depreciates the money value relative to the US by so much? I genuinely believe India has stronger growth, but those two facts don't seem to match up. One would think that a stronger economy would imply more investment, and thus push the price up on the currency. ELI5.

Cause India imports much more than it exports. And the majority of global trade happens in USD which effects demand for USD.

I have direct experience with this as an NRI. Indian govt charges outbound INR to USD conversion at 5% for amounts above 10k USD [1]. So apart from the rupee depreciation you’d have to account for that if you ever need your money out.

I see the value of your platform and in the past I’ve invested a lot of USD in india and gotten great returns. But when I needed my money out for grad school, I had to pay these outrageous fees. Even the amount exchanged for tuition is taxed at 0.5%, all other transfers at 5%.

My net return on mutual funds investments were not so great on a dollar by dollar terms.

It’s not just me, many (younger) NRIs would prefer to invest in US index funds or if they’re feeling risky invest in vanguard emerging market funds.

Edit: added reference

[1] https://taxguru.in/service-tax/tax-implications-forex-transa...

> Indian govt charges outbound INR to USD conversion at 5%.

I'm sorry, what?

Yes, above 10k USD. So if you need access to your investments above 10k USD you’d have to pay 5% on the extra amount. I was shocked when I found out that my forex transfer for buying a car in Canada was cancelled and I had refill an A2 form with the taxed amount added and sign and scan it. It’s a hellish experience if you’re used to the US banking system.

https://taxguru.in/service-tax/tax-implications-forex-transa...

1. You should not be subjected to TCS if you are not an Indian resident. Perhaps you did not convert your bank account to NRE?

2. You can file tax return and get a refund if your tax liability is nil or lower than tax collected at the end of the financial year.

This still doesn't make this situation better but it is not a charge, just an advance tax automatically deducted which needs to be adjusted or claimed back.

Agreed with this comment, the 5% is applicable for Indian residents, not NRIs. If the tax status and bank account was not updated to NRI, this would have been incurred.

LRS and the associated TCS is not applicable to NRIs. I have no idea what you're on about.

I see, my status changed from US tax resident to student in Canada so the taxes now apply. I stand corrected.

Still I feel it’s unfair in a globalized economy considering it’s reducing liquidity, as in you have to be a tax resident of some other country to avoid this steep tax. For example if you decide to take a year long sabbatical or retire in, say Portugal, you’d have to pay the tax every time you withdraw money for rent and groceries.

> I see, my status changed from US tax resident to student in Canada so the taxes now apply.

If you stay in Canada for more than 183 days in a year, you are deemed a resident of Canada. I don't understand why the tax applies.

> Still I feel it’s unfair in a globalized economy considering it’s reducing liquidity, as in you have to be a tax resident of some other country to avoid this steep tax.

It's not an additional tax. It simply changes when the tax is collected.

> For example if you decide to take a year long sabbatical or retire in, say Portugal, you’d have to pay the tax every time you withdraw money for rent and groceries. . The tax only applies if you have an Indian income of more than 15 lakh rupees and you are not a tax resident elsewhere. If you retire in Portugal, this does not apply to you.

Interesting. I'll check with our CA then. I've paid a significant amount of these 5% taxes over the past 2 years to ebixcash. They outright reject transfers beyond 700k INR otherwise.

It's probably because EbixCash isn't set up to handle remmitances by non-residents. Using a bank where you have an NRO account should allow you to remit upto 1 million USD.

Tangentially related to your first point is the phenomenon / heuristic of : https://en.m.wikipedia.org/wiki/Interest_rate_parity

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